That would mean that in an effort to boost the economy, the Fed
would buy more purchases... perhaps Mortgage Backed Securities
with the purpose of bringing down interest rates for homebuyers.

In a note put out last night, Goldman's Sven Jari Stehn presents:
The Case for
a Double Punch in September.

Stehn's paper actually keys off of the
Michael Woodford Jackson Hole paper that everyone has been
talking about, wherein the famed monetary economist calls for the
Fed to adopt Nominal GDP targeting, making the argument that
forward guidance is much more powerful than asset purchases,
which Woodford mostly deems to be ineffective.

Stehn is sympathetic to Woodford, especially on the target part,
but thinks Woodford "sells QE short."

Asset purchases do reduce interest rates, argues Stehn.

Their explanation is pretty technical ("First, we
attempt to model explicitly the FOMC’s forward guidance using the
slope of the Eurodollar curve (three years ahead minus one year
ahead..."), but the gist is that their models find a
meaningful impact on yields from both the guidance and the asset
purchases.

Based on their work, a lot more juice can be squeezed by an asset
purchases/guidance combo.

Goldman
Sachs

As such, Goldman calls for what it calls a "double punch."

What do these
considerations imply for the FOMC’s next steps? One important
factor to consider is that stylized models of the economy—such as
the toy model discussed above and the models Michael
Woodford has developed—ignore the potential risks associated
with adopting an aggressive state-contingent commitment such as
the Evans proposal or a nominal GDP level target. For example,
these models do not allow for the possibility that inflation
expectations might get dislodged after a period of above-target
inflation. Given the potentially large gains in economic
performance, one can certainly argue that such risks would be
worth taking. But they do explain why a cautious institution such
as the Federal Reserve remains reluctant to embrace these
aggressive forms of forward guidance.

In
practice, we therefore believe that less aggressive forms of
strengthening the forward guidance—such as a simple shift in the
date for the first rate hike—are more likely at this point. Even
these could be quite effective if the yield curve was still very
steep, because Fed officials could then push down the forward rate
structure substantially. With the curve as flat as it is, however,
a simple shift in the date is probably insufficient on its own to
deliver a large amount of monetary accommodation at this
point.

This
suggests that the FOMC will need to combine a shift in the date
with renewed asset purchases. In practice, we expect the
committee to extend the rate guidance from late 2014 to mid-2015
or later—possibly coupled with a modest reformulation of the
forward guidance sentence to emphasize the desire to promote
economic recovery—and to announce an open-ended asset purchase
program of around $50 billion per month, with an end date that is
made dependent on progress in the economic recovery. Taken
together, these measures would probably amount to a meaningful
monetary easing step, although they still fall short of the boost
that could be delivered by the more aggressive forms of guidance
advocated by Woodford and examined in some of our own past
research.